Stone Company manufactures a product that contains a small lens.The company has always purchased this lens from a supplier for $17 each.Stone recently upgraded its own manufacturing capabilities and now has enough excess capacity (including trained workers)to begin manufacturing the lens instead of buying it.The company prepared the following per unit cost projections of making the lens, assuming that overhead is allocated to the part at the normal predetermined overhead rate of 75% of direct labor cost:
$\begin{array}{ll}
\text { Direct materials } &\$ 7.82 \
\text {Direct labor } &7.00 \
\text { Overhead (fixed and variable) } &\underline{5.25} \
\text { Total } &\underline{\$ 20.07}
\end{array}$ The required volume of output to produce the lenses will not require any incremental fixed overhead.Incremental variable overhead cost is $0.68 per lens.Should Stone Company make or buy the lenses?

Question

Stone Company manufactures a product that contains a small lens.The company has always purchased this lens from a supplier for $17 each.Stone recently upgraded its own manufacturing capabilities and now has enough excess capacity (including trained workers)to begin manufacturing the lens instead of buying it.The company prepared the following per unit cost projections of making the lens, assuming that overhead is allocated to the part at the normal predetermined overhead rate of 75% of direct labor cost:
 $\begin{array}{ll}
\text { Direct materials } &\$ 7.82 \
\text {Direct labor  } &7.00 \
\text { Overhead (fixed and variable) } &\underline{5.25} \
\text {  Total } &\underline{\$ 20.07}
\end{array}$ The required volume of output to produce the lenses will not require any incremental fixed overhead.Incremental variable overhead cost is $0.68 per lens.Should Stone Company make or buy the lenses?

Quizplus · Accepted Answer

The Answer of Stone Company manufactures a product that contains a small lens.The company has always purchased this lens from a supplier for $17 each.Stone recently upgraded its own manufacturing capabilities and now has enough excess capacity (including trained workers)to begin manufacturing the lens instead of buying it.The company prepared the following per unit cost projections of making the lens, assuming that overhead is allocated to the part at the normal predetermined overhead rate of 75% of direct labor cost:
 $\begin{array}{ll}
\text { Direct materials } &\$ 7.82 \
\text {Direct labor  } &7.00 \
\text { Overhead (fixed and variable) } &\underline{5.25} \
\text {  Total } &\underline{\$ 20.07}
\end{array}$ The required volume of output to produce the lenses will not require any incremental fixed overhead.Incremental variable overhead cost is $0.68 per lens.Should Stone Company make or buy the lenses?

Stone Company Manufactures a Product That Contains a Small Lens